13 5) What is a common risk offered by forecast push models and how IS can help out by reducing them?

14 Supply Chain Bullwhip Effect and Information DistortionIt is an observed phenomenon in forecast-driven distribution channels. Because customer demand is rarely perfectly stable, businesses must forecast demand in order to properly position inventory and other resources. Forecasts are based on statistics, and they are rarely perfectly accurate. Because forecast errors are a given, companies often carry an expensive inventory buffer called "safety stock". Moving up the supply chain from end-consumer to raw materials supplier, each supply chain participant has greater observed variation in demand and thus greater need for safety stock. In periods of rising demand, down-stream participants will increase their orders. In periods of falling demand, orders will fall or stop in order to reduce inventory. The effect is that variations are amplified as one moves upstream in the supply chain.Supply chain experts have recognized that the Bullwhip Effect is a problem in forecast-driven supply chains. The alternative is to establish a demand-driven supply chain which reacts to actual customer orders. In manufacturing, this concept is called Kanban. This model has been most successfully implemented in Wal-Mart's distribution system. Individual Wal-Mart stores transmit point-of-sale (POS) data from the cash register back to corporate headquarters several times a day. This demand information is used to queue shipments from the Wal-Mart distribution center to the store and from the supplier to the Wal-Mart distribution center. The result is near-perfect visibility of customer demand and inventory movement throughout the supply chain.Better information leads to better inventory positioning and lower costs throughout the supply chain. Barriers to the implementation of a demand-driven supply chain include the necessary investment in information technology and the creation of a corporate culture of flexibility and focus on customer demand.

15 Cisco felt the Bullwhip in 2001At the same exact time, a few components for Cisco’s networking equipment were rumored to be in short supply. Privately, Cisco was already twitchy because lead times on delivering its routers and switches were extending. Eventually those lead times would reach nearly six months on some products. Not having the components could push those delivery dates out even further. So Cisco decided to build up its components inventory.Doing that would accomplish two things: It would reduce the wait time for its customers, and it would give the manufacturers of Cisco’s switches and routers a reserve to draw on if components makers ran out.Of course, everyone else wanted those components and the manufacturing capacity to build the networking devices too. So in order to get both, to make sure they would have them when they needed them (and they knew they’d need them; the virtual close told them so),Cisco entered into long-term commitments with its manufacturing partners and certain key components makers. Promise us the parts, Cisco said, and we promise to buy them. No matter what.

16 Cisco felt the Bullwhip in 2001At the same exact time, a few components for Cisco’s networking equipment were rumored to be in short supply. Privately, Cisco was already twitchy because lead times on delivering its routers and switches were extending. Eventually those lead times would reach nearly six months on some products. Not having the components could push those delivery dates out even further. So Cisco decided to build up its components inventory.Doing that would accomplish two things: It would reduce the wait time for its customers, and it would give the manufacturers of Cisco’s switches and routers a reserve to draw on if components makers ran out.Of course, everyone else wanted those components and the manufacturing capacity to build the networking devices too. So in order to get both, to make sure they would have them when they needed them (and they knew they’d need them; the virtual close told them so),Cisco entered into long-term commitments with its manufacturing partners and certain key components makers. Promise us the parts, Cisco said, and we promise to buy them. No matter what.

17 The Benetton Way: cut-dyed-packedInformation originates from Benetton's 7,000 shops. The shop managers select from new collections twice a year, but then reorder regularly through the season. In the old days they had to guess what they wanted months in advance, and hope they had neither under nor over-ordered. Now they can put in an order and the clothes - made specifically for them –will be dispatched two weeks later.Their requests are routed to a central computer in Ponzano Veneto. It is linked to a computerised design system that calculates how many, say, shirt pockets need to be cut of which size, and the instructions are transmitted to Castrette.In a small room in the factory, three machines are receiving these instructions and converting them into drawings on a square of paper: pens zigzag frantically, drawing out unidentifiable shapes that will act as templates for the pieces of cloth.The cloth, meanwhile, is being laid - perhaps 70 pieces at a time - on a long cutting table. It hovers along on a blanket of air before the flow is reversed and the cloth sucked into a solid wodge an inch or so thick.Now it is as dense as wood, so a jigsaw, receiving instructions directly from Ponzano Veneto, can start cutting the shirt pocket out. A layer of paper - the sheets generated by the busy machines - is pinned on the wodge with an identifying code; from then on, each piece of cloth is assigned to a particular shop.No humans have been involved since the cloth was first laid on the table; now they take over and pack the cloth in boxes, ready for collection by the subcontractors' lorries.

20 Why models differ while lead time remain the same?If Benetton had a theme song, it could be "We Are the World." Italy's largest clothing maker, The Benetton Group pushes a global attitude in its ads while dressing customers in 120 countries through more than 5,000 franchised Benetton stores, department stores, and megastores.Benetton's clothing -- primarily casual knitwear and sportswear for men, women, and children -- bears labels such as United Colors of Benetton and Sisley (nearly 20% of sales). The Benetton family, through Edizione Holding, owns about two-thids of the company's shares.Key numbers for fiscal year ending December, 2006: Sales: $2,523.1M One year growth: 13.1% Net income: $131.8M Income growth: 15.9%Employees: 8,894 Employee growth: 11.5%